Market Correlation Down? Get Cautious

By Brendan Conway

If the market is calm, maybe it’s time to worry.

That’s the gist of Citigroup (C) strategist Tobias Levkovich’s note to clients this morning. The measure known as correlation — it’s high when investors buy and sell stocks in big, worried chunks — is down around 30% for the biggest components of the Standard & Poor’s 500-stock index (SPY). This state of relative calm “continues to argue for some near-term caution,” Levkovich argues in a note co-authored by Lorraine M. Schmitt and Christina Wood.

Stocks have spent the great majority of time since the financial crisis with tighter correlation. The measure was around 80% earlier this year. It hit near 100% as recently as mid-2011, according to Citi’s data.

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